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AHP-MONSANTO: Largest U.S. Rx Merger To Date

American Home Products Corp. -- the Madison, NJ-based maker of Advil and other household products -- is merging with St. Louis-based biotechnology leader Monsanto Co., "forming a pharmaceutical-agricultural powerhouse with a market value of more than $96 billion." The Bergen Record reports that the $33.5 billion stock deal is the "biggest drug merger ever" and the "sixth-largest U.S. corporate merger" (Gerena-Morales, 6/2). The New York Times reports that the merger will enable AHP "to double its research spending to $3 billion annually, add several new drugs to its pipeline and bolster its position in genetic engineering to develop drug compounds." With the addition of Monsanto's drug division (Searle), AHP Chair and CEO John Stafford said, "We'll be No. 3 or 4 in the world when it comes to pharmaceuticals, up from No. 6" (Morrow, 6/2). The St. Louis Post-Dispatch reports that the deal "will cost St. Louis one of its 11 Fortune 500 company headquarters," as the new company's headquarters moves to Madison, NJ. Under the deal, the top officers of both companies will serve as "cochairmen" of the merged firm. The Post- Dispatch reports that Monsanto's shareholders will own 35% of the new company, which "will sell about $23 billion a year worth of drugs, agricultural products and consumer products." Robert Shapiro, chair and CEO of Monsanto, said, "It is a merger of equals, notwithstanding the fact that their market value is higher than ours" (Steyer, 6/2).

Merger Or Buyout? Neil Sweig, a Southeast Research Partners analyst, said, "American Home Products appears to be taking control of Monsanto" (New York Times, 6/2). But in a joint release yesterday, both companies stressed that the deal "is not an acquisition by one company of the other, but rather is a merger of equals transaction." AHP shareowners will retain their shares and Monsanto shareowners will receive 1.15 shares in the new company. The new company's board, in addition to being co-chaired by Shapiro and Stafford, will consist of 22 members -- 11 from each company (Monsanto release, 6/1). Separately, the Post-Dispatch reports that many Monsanto employees were "dazed" by news of the merger, which they learned of when the announcement "was posted on the company's e-mail system Monday morning." A Monsanto spokesperson said employees would be shifted to other parts of the country: The biotech division will be based in Madison, the agricultural division in St. Louis, the pharmaceutical branch in Radnor, PA, and the consumer health and nutrition division in Chicago (Hieb, 6/2). Check out today's Post-Dispatch for wide-ranging coverage of the deal -- http://www.stlnet.com/.

New Life The Newark Star-Ledger reports that the merger "will create a powerhouse in life sciences, a catch-all phrase for the genetic technology being used to develop new crops, food and pharmaceuticals." Shapiro said, "The backdrop ... is a scientific revolution taking place in our knowledge of biological sciences, which is fueling opportunities to create important products in agriculture, nutrition and human health" (Silverman, 6/2). "It's a genetically-engineered deal that will take American Home Products from the pharmacy to the farm, creating ... the number four force in pharmaceuticals," CNN's Terry Keenan reported. Stafford said, "The new company will have a very substantial global presence. This is a nice fit in the pharmaceutical area, for example, because we have a strong international presence, strong presence in the U.S." But even more significant, reported Keenan, is how the merger will take both companies into the "burgeoning area of life science and gene technology where both companies are big players" (" Moneyline," 6/1).

Ag-Rx Strategy The Financial Times reports that AHP-Monsanto's "'life sciences' strategy" of pooling agricultural and medical biology efforts "contrasts with the policy of many mainstream pharmaceutical companies, such as Glaxo Wellcome, SmithKline Beecham and Merck," which instead "have chosen to concentrate on human health." However, Zeneca Chair Sir David Barnes sees life science as a future trend. "The agricultural and medical market places are very different but at the research level there is growing commonality. Technologies such as gene sequencing, combinatorial chemistry and high-throughput screening are as relevant to the agricultural as to the human health sector," he said (Cookson/Tait, 6/2).

Market Reax News of the merger "elicited yawns on Wall Street" (Groves, Los Angeles Times, 6/2). The Wall Street Journal reports that "Wall Street observers had expected" Monsanto to merge "because its corporate pockets aren't deep enough to match the research at larger competitors" (Tanouye/Miller/Lipin, 6/2). The Financial Times reports that among investors there were "some reservations about the short-term earnings implications." And while there may be "strategic rationale" for the merger, there may not be as much "financial" appeal (Tait, 6/2).

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